CoreWeave (CRWV) stock plunged 12% on Oct. 16, putting the AI infrastructure company on track to finish the week down 25% as concerns over AI funding continued to weigh on market sentiment.

Earlier this week, Bloomberg reported a sharp rise in CoreWeave's bond yields, raising questions about whether the company can generate enough cash flow to support its rapid expansion.

CoreWeave's bond yields climbed to around 15%, while the cost of insuring its five-year debt against default rose by as much as 74.5 basis points to 1,194.5 basis points, an all-time intraday high, according to Bloomberg. That could mean odds of more than 60% that CoreWeave would default sometime in the next five years.

CoreWeave has been spending heavily on data centers and Nvidia (NVDA) chips to meet soaring demand for AI computing power.

The company has secured major contracts with AI developers and technology companies, but building the infrastructure needed to fulfill those agreements requires substantial upfront investment.

Nvidia CEO Jensen Huang defends CoreWeave

The Friday, Oct. 16, decline came after CoreWeave stock rebounded the prior day, following comments from Nvidia CEO Jensen Huang that helped ease some concerns.

"CoreWeave's strength is improving every day," Huang said at a Bloomberg event in Stockholm. "I'm optimistic. Their cost of capital is actually decreasing."

Nvidia holds roughly 47.2 million shares of CoreWeave, representing about a 10% stake in the company. CoreWeave is also a major customer of Nvidia's chips.

However, Huang's reassurance failed to sustain the rebound.

Peer Nebius (NBIS), another company investing heavily in AI computing infrastructure, dropped about 12% on Oct. 16 and was also headed for weekly losses. Nvidia also invests in Nebius.

Also read: Dell stock price tumbles 6.8% after epic 271% run

In August, CoreWeave reported second-quarter results that topped Wall Street expectations.

The company posted an adjusted loss of $1.03 per share, narrower than the $1.20 loss analysts expected. Revenue came in at $2.58 billion, up 112% from a year earlier and above the $2.56 billion estimated by Wall Street.

For the third quarter, CoreWeave guided for revenue of $3.4 billion to $3.6 billion, implying 158% growth at the midpoint. Analysts surveyed had expected $3.43 billion, CNBC reported.

CoreWeave also reported a revenue backlog of more than $100 billion. That means it hasn't earned that money yet.

CoreWeave stock is down 15% year to date.Getty Images

Analyst recommends buying CoreWeave stock on a dip

Despite the recent sell-off, Cantor Fitzgerald analyst Brett Knoblauch believes investors are focusing too heavily on CoreWeave's debt and overlooking its improving business fundamentals.